Securities Litigation/Arbitration
The
attorneys at Barker, Rodems & Cook, P.A., handle all types of securities
litigation, including class actions. However, most cases involve individual
claims and are pursued through a process called arbitration. Most brokerage
firms now have a mandatory arbitration provision included in their account
agreements; therefore, if the account agreement was signed recently, it
is an almost certainty that any claims will be required to be submitted
to binding arbitration. If an investor attempts to file a lawsuit or seek
relief from a court, and the account agreement contains an arbitration
clause, the court will generally not hear the case and will send it to
arbitration.
Securities arbitration is a means of resolving disputes
between investors and stock brokers out of court. On behalf of both investor
and broker/ brokerage, evidence is submitted to either a single arbitrator,
or a panel of arbitrators, depending upon the case, and all parties agree
to b
e
bound by the decision of the arbitrator(s) regarding the dispute. A typical
case will involve a panel of three arbitrators, an industry arbitrator
and two non-industry arbitrators. The industry arbitrator will be generally
familiar with the brokerage and securities industry and will likely work,
or have worked, for another brokerage with no involvement in the case.
The two non-industry arbitrators will typically be attorneys who are in
private practice and who have knowledge of securities laws. After hearing
all of the evidence, the arbitrators will announce their decision by creating
a written award from which is binding on both parties and is practically
not subject to any appeal. This can be one of the drawbacks to arbitration
in that, although the parties can generally obtain a speedy result, there
is essentially no right of appeal and overturning a disappointing or unjust
award is extremely difficult, if not impossible.
However, there are several potential advantages to arbitration.
Arbitration is 
generally
faster and less expensive than filing a lawsuit or going to court and
the costs of pursuing an arbitration claim can be lower because the amount
of discovery of information before the arbitration hearing is more limited
than in court proceedings. And, depositions, which can be very time-consuming
and costly, are generally not allowed in arbitration proceedings. Also,
the strict rules of evidence which apply in court cases are more flexible
and relaxed in arbitrations., which can result in the ability to admit
testimony or documents which might not normally be admissible.
TYPES OF SECURITIES CLAIMS
Although there are many types of securities claims, claims by investors generally involve one or more of the following actions or circumstances:
- Churning is when a broker or brokerage engages in excessive and unnecessary trading in a consumer's investment account. This is normally done to increase brokerage profits through the generation of commissions.
- Many investors find that they are placed into investments which are unsuitable for them. A stock broker or brokerage has a duty to make investment recommendations which are consistent with a customer's investment objectives, needs and ability to tolerate risk and absorb the potential losses associated with the investment. A broker or brokerage should recommend only those investments and trading strategies which are suitable for an investor considering all of these circumstances and the failure to do so can create liability.
- Generally, an investment account must be diversified or distributed among several different types of investments which are consistent with the needs and risk tolerance of a particular investor in order to limit the potential risk of loss to the investor. If a broker or brokerage concentrates an investor's account in any one particular investment or type of investment, even though such investment might be suitable, the risk of loss to that customer has been greatly increased. And, a sharp decline in the value of that particular investment or type of investment can therefore produce a inordinately large loss to the investor.
- Negligence simply means conduct which falls below the legal standard of care required to prevent harm to others. All that is required for an action to be negligent is that a reasonable person in his position would have anticipated the results or consequences of the actions and would have taken reasonable precautions to prevent or protect against such consequences. The broker or brokerage does not have to intend for the investment loss, or other consequences, to occur in order to be held responsible.
- In many instances, the duty owed to an investor by a broker or brokerage is considered to be a fiduciary duty. If an investor, due to lack of sophistication or knowledge, places great faith in the advice and recommendations of the broker or brokerage, the degree of care owed to that investor is higher and likely reaches the level of a fiduciary duty. Brokers and brokerages always have a duty to deal with investors in good faith and to execute all orders correctly and efficiently, but the degree of an investors reliance upon the broker or brokerage can create a special fiduciary duty which, when breached or broken, can result in liability to that investor for losses resulting from the breach.
- A broker or brokerage may be liable to a customer if that broker misrepresents, intentionally or unintentionally, important facts or information about an investment or by omitting or failing to disclose such important facts to an investor. In most cases, misrepresentations or omissions hide or distort the risks associated with a particular investment or a particular investment recommendation. Brokers and brokerages must disclose all of the risks associated with an investment or recommendation and may be responsible for losses incurred by an investor if full and appropriate disclosures are not made.
- For various and often complex reasons, brokerages and brokers have a desire to drive up or maintain the value of a particular investment or security and, without disclosing this interest or agenda to the investor, simply fail or refuse to sell, or advise against selling, the investment in question. It is commonplace when manipulating the price of an investment for the brokerage or broker to refuse or discourage any attempts to sell, even if the investor wants or needs to sell or has provided express instructions to sell. Investors may have a claim if the investment declines in value following a failure or refusal to sell.
- Fraud is simply the use of false or intentionally misleading statements or omissions to induce the investor to buy or sell a certain investment. Unfortunately, an investor is sometimes intentionally misled in connection with the purchase or sale of an investment. Fraud is most common among smaller or unknown brokerages and with brokerages or brokers who "cold call" investors and promise inordinately large returns. In dealing with a broker or brokerage with whom an investor has no prior dealings, it is wise to remember that, if it sounds too good to be true, it probably is.
STATUTES OF LIMITATIONS
It is important to understand that claims against a brokerage or broker must be commenced with certain time limits referred to a statutes of limitations. The statutes of limitations will vary depending upon what claim is asserted and are different for state and federal claims. Statutes of limitations can be as short as one year; and, because the statute of limitations often begins to run, or expire, when an investor knew or should have known of the facts giving rise to a potential claim, an investor should consult with an attorney immediately upon learning of any problem in order to determine his or her rights and responsibilities.
We will be happy to speak with you about your potential
or existing claim. Just give us a call in Tampa at 813/489-1001, in Pinellas
County at 727/518-9200 or toll free at 888/892-8722; or, if you prefer,
contact us via E-mail
by clicking here or view our Contact Us
page.
